More and more are going for personal loans

DESPITE the measures taken by the Central Bank of Oman (CBO) to control personal loans, their total value continues to increase due to the entry of more national manpower to the job market on one hand, and further expansion of implementation of public and private projects worldwide on the other hand.
This has resulted in new applications by citizens to take loans to keep pace with these developments, along with the escalating desire to spend the loans on different luxuries like buying a new car, travelling, etc.
The latest data issued by the Central Bank of Oman indicate that the total value of personal loans provided by local commercial banks to individuals by the end of the first half of this year has reached RO 5.825
billion compared to RO 5.605 billion during the same period last year, an increase of RO 220 million and a growth rate of about 3.92 per cent.
Personal loans have accounted for 39.6 per cent of the total value of bank credit provided by commercial banks at the end of June 2013 by the sum of RO 14.722 billion compared to RO 13.674 billion provided during the same period of 2012. Thus, personal loans rank first on the bank credit distribution list in Oman.
This does not mean that banks focus most of their attention only on meeting the requests for personal loans. Currently, more than 60 per cent of the total value of bank credit and banking facilities direct their finances towards other productive economic sectors, such as construction, services, commerce and industry, export and import, transport and communications, electricity and water, mining, agriculture and so on.
During the past year and this year, the issue of personal loans has been on the list of issues addressed by the Board of Governors of the Central Bank of Oman, which approved in March of last year to reduce the interest rate ceiling on personal loans offered by local commercial banks from 8 per cent to 7 per cent annually to keep up with the global trend of interest rates and ease the financial burden on borrowers as well as urge banks to promote savings and reduce consumption.
The Board of Governors also decided at its meeting in March of this year to raise the ceiling of housing loans of commercial licensed banks from 10 per cent to 15 per cent of total loans and to lower personal loan ceiling from 40 per cent to 35 per cent of total lending.
Recently, Hamood bin Sangour al Zadjali, Executive President of the Central Bank of Oman, pointed out that commercial banks need to adhere to the quantitative ceiling recently set by the Central Bank of Oman for personal loan portfolios not to exceed 35 per cent of the bank’s total portfolio, taking effect from the end of June next year (2014), to allow for expansion in granting housing loans.
He also stressed that the impact of this decision on banks would be limited because most banks meet this requirement at this time, or a little higher.
During the next phase, banks are expected to work towards providing more credit to small and medium enterprises according to the decision of the CBO directing commercial banks to grant 5 per cent of their total credit portfolio to SMEs. The decision led local banks to establish administrative units specialised in providing the best banking services for SMEs which began growing recently under the management of citizens.
Meanwhile, banks continue to provide the necessary funding to other institutions for the implementation of productive projects that are increasing significantly in light of the rapidly growing economic and commercial activities.
The commitment of commercial banks to the quantitative ceiling of lending will make some citizens search for other alternatives because banks will not be able to provide them with their funding needs. This is in accordance with the circular issued recently by the CBO regarding personal loans (maximum debt burden of the net salary).
It stipulates that the maximum period of loan repayment shall not exceed 10 years, and top-up to be made available only after 24 months of satisfactory conduct of existing loan or after 50 per cent of existing loan is repaid. There must be more awareness on a regular basis to the fact that personal loans are a heavy burden not only to the borrower but the society as well, especially if the loan money is spent on recreation and temporary luxuries. When unable to make the required payment, the default borrower might be investigated and prosecuted and might even end up getting jail.
There is no denying that personal loans can have positive effects for those willing to turn a carefully thought-out idea into a successful project.